In this study, we employ in vitro models to study the factors involved in the differentiation of pancreatic precursor cells into hormone-producing cells of the islets of Langerhans and their mechanisms of action with a goal to develop a system that could be used for cell replacement therapy for patients with diabetes mellitus. Development of the endocrine pancreas includes a series of early events wherein precursor cells migrate to form aggregates that subsequently differentiate into islets of Langerhans. We use primarily cells derived from human cadaveric pancreata, human islet-derived precursor cells (hIPCs), to study regulation of proliferation, cell migration and aggregation that precede differentiation. Most interestingly, we have found that hIPCs most likely are derived by in vitro epithelial-to-mesenchymal transition of mature beta cells and that differentiation of hIPCs represents mesenchymal-to-epithelial transition back to pancreatic hormone-expressing. We have established a novel cell culture system using hIPCs that allows for proliferation of these precursor cells for at least 30 generations. The proliferating cells can be induced to differentiate into insulin-expressing cells in vitro and when transplanted in to mice increase their content of preproinsulin mRNA at least 100,000-fold. We have begun to use these cells to study their regulation by growth/developmental factors (GDFs). One set of GDFs that we have identified are the factors that are ligands for protease-activated receptors (PARs). Activation of PARs enhances the survival of hIPCs as they are induced to differentiate into hormone-expressing islet-like cell aggregates (ICAs). We are also studying GDFs that can allow for generations of hIPCs in the absence of animal serum/proteins and role of cell-cell and cell-matrix interactions that are involved in the regulation of differentiation of the three-dimensional ICA structures.